Question

Racquel deposited $40,000 in an account paying 4.8% annual interest in 2009. She now wants to make four equal annual withdrawals from the account starting with the first withdrawal in 2021. Racquel also wants to have exactly $60,000 left in the account in 2026. How large can each of the annual withdrawals be?

Answer 1

the annual withdrawals must be $2,006.49.

Step-by-step explanation:

First determine how much the $40,000 would be at the end of 2020 that is 7 years following the investment as follows :

PV = - $40,000

r = 4.8%

Pmt = $0

P/yr = 1

n = 7

Fv = ?

Using a Financial Calculator, the $40,000 will be $55,537.84 in 7 years time.

The next step is to determine the annual withdrawals that will result in $60,000 left in 6 years.

PV = - $55,537.84

r = 4.8%

P/yr = 1

n = 6

Fv = $60,000

Pmt = ?

Using a financial calculator, the annual withdrawals must be $2,006.49 for Racquel to achieve her goals.